By John Lee.
The National Investment Commission (NIC) has announced the following investment opportunities:
(Source: National Investment Commission)
By John Lee.
The National Investment Commission (NIC) has announced the following investment opportunities:
(Source: National Investment Commission)
Rabee Securities Iraq Stock Exchange (ISX) market report (week ending: 25th June 2020).
The RSISX index ended the week at IQD581 (-2.0%) / $603 (+3.1%) (weekly change) (-11.9% and -14.0% YTD change, respectively). The number of week traded shares was 2.4 bn and the weekly trading volume was IQD2.3 bn ($1.8 mn).
Note: According to the Public Health Committee’s decision to maintain curfew days on Thursdays, Fridays and Saturdays, trading on the ISX will be from Sundays to Wednesdays until a further announcement.
ISX Company Announcements
Prime Minister Masrour Barzani chaired a video conference meeting on Tuesday on notarisation of lands and residential housing projects.
In the meeting attended by Deputy Prime Minister Qubad Talabani and other cabinet ministers, Prime Minister Barzani spoke about separating land plots allocated for projects in a bid to resolve the issue of lands granted to people by municipalities, and the issue of residential apartments which will be notarised under the names of owners.
The meeting also discussed the subject of reorganising income from companies providing services at cities and villages in a way these services are affordable by people. They also stressed the importance of speeding up the procedures of compensating those whose lands fall within the map of cities.
They also reviewed the implementation of laws and instructions relating to ownership of residential lands which have been trespassed in light of the parliament law no. 3 of 2019, which concerns the notarisation of lands that are trespassed in a way that favours low-income people and prevents trespassing of public properties.
Cabinet ministers explained their perspectives on these issues and their suggestions were approved following an exchange of views on these questions.
IBBC Advisory Council’s discussion goes public on the white paper ‘Iraq 2020: a country at the crossroads.’
Today over 300 people signed up the IBBC Advisory Council’s public discussion on the white paper – Iraq 2020: a country at the crossroads, sponsored by Iraq Business News ( IBBC media partner) and in conjunction with Chatham House and IRIS at AUIS.
With a full panel of 6 advisors and commentators, including Ms Maya Gebeily of Agence-France Presse, Mr Ahmed Tabaqchali of IRIS at AUIS, and the key advisory panel members led by Professor Frank Gunter of Leigh University, Dr Renad Mansour, Fellow at Chatham House, Mr Hani Akkawi of CCC and Professor Mohammed Al-Uzri, University of Leicester University. Mr Christophe Michels, MD of IBBC chaired the discussion.
The key points were delivered by Professor Gunter, including, the necessity to provide: 1. Strong cross-party political support to GOI for its initiatives; 2. Transparency to build support and trust among the people and to stop corruption up and down the system. 3. GOI acceptance of the limits of its ability to control and centralise economic activity- and afford to make space for the Private sector.
Dr Mansour made critical points about the importance of the political economy and the requirement to listen and understand the needs of the protestors and conversely the protestors ability and requirements of government to make changes, along with the difficulty in enacting reforms while the public sector has too much invested in its continuation.
Mr Hani Akkawi, made an unmissable point about the opportunity for areas of industry to be returned to the private sectors, such as electricity, water, fertiliser and transport, that would not only raise finance, but help efficiency and productivity.
Underpinning the report are 5 key action points and a further 38 recommendations that the GoI may be able to make to address the economic crisis that faces the country, including; business deregulation, inclusion of the informal business sector into legal acceptance, ending subsidies on electricity and water production, am improved banking system with credit for private sector businesses, an anti-corruption drive and dealing with COVID-19 without jeopardising the private sector.
Click below to read the full paper:
For further information please contact firstname.lastname@example.org
You are invited
to hear a discussion of the IBBC Advisory Council’s paper on
‘Iraq 2020, a country at the crossroads’
When: Monday 15th June at 2pm UK
Where: Zoom Platform
The paper published for the new Iraqi Government recommends a number of decisive changes to be implemented without delay, in order for Iraq to be able to navigate the rapidly deepening economic crisis she is facing.
This open public forum takes place in partnership with IRIS (Institute of Regional and International Studies) at AUIS (American University of Iraq, Sulaimani) and Chatham House.
Click below to read the full paper:
By Ahmed Tabaqchali, CIO of Asia Frontier Capital (AFC) Iraq Fund.
Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.
Market Review: “Not as Bad as Feared, but Still Pricing It”
As May drew to a close the ‘worst-case’ prognosis for Iraq in the wake of the carnage brought about by COVID-19 turned out to not be as bad as originally feared – not by a wide margin. But its equity market is still discounting the worst of possible outcomes, notwithstanding a strong close for the month with the Rabee Securities RSISX USD Index (RSISUSD) up 10.7%.
The first of the negatives to dissipate was the political chaos that gripped the country for over six months since the youth-led protest movement forced the resignation of the prime minister. The severe crisis brought on by the collapse in oil prices, and the threats – health and economic – of COVID-19, forced the political elite to suspend their quarrels and appoint a prime minister whose reform agenda would threaten their interests.
The fundamental governing equations of Iraq’s political system – which largely allowed the political elite to maintain their oversized influence on economic policies – are mostly still functioning. Yet, the scale of the economic crisis is providing the new government the opportunity to pursue meaningful economic reforms. As articulated by the Minister of Finance, these reforms include a fundamental retooling of the budget’s structural imbalances that favoured current spending over investment spending.
The first of these are likely to be cuts to public payroll expenditures (at 47% of the 2019 budget), which coupled with other rationalization measures and an improving oil price environment (discussed below) would relieve the pressure on government finances. Crucially, embarking on such reforms would allow a resumption of the dialogue with the IMF, following the straining of the relationship by the prior government’s abandonment of the 2016 Stand-by Agreement. Such a dialogue would allow Iraq access to debt markets as it seeks to restructure its past failed economic model.
The appointment of the new PM was followed by easing of the concerns that prompted the collapse in oil prices to historic lows in late April. Q2 is likely to see a much less dramatic decline in world oil demand, estimated to drop 20% versus last year, whereas expectations were for a drop of 30%.
This was complemented by a surprisingly massive, estimated, 12% drop in world oil supply in May as the OPEC+ agreement came into effect, as well as a much larger than expected drop in production elsewhere, especially in US shale oil. The combination reduced the severe pressures on global crude storage capacity and provided support for oil prices.
Finally, like in the rest of the world, Iraq is slowly emerging from lockdown and resuming economic activity, providing much-needed relief to the country’s private sector. While every sector of the economy has felt the effects of the lockdown, the informal sector – dominated by retail trade, transport and hospitality, and which accounts for the bulk of private-sector economic activity – has been particularly hard hit as seen from the chart below, which shows changes in economic activity compared to the baseline between January 3rd and February 6th.
(Baseline is the median, for the corresponding day of the week, during January 3rd – February 6th,
Source: Google, data as of May 29th.)
However, economic activity has recovered to about 80% of pre-lockdown levels – with the big drop in late May being due to the Eid holiday. This recovery will likely gradually continue over the coming weeks and will contribute to the healing of the economy. However, it should be repeated that the decline in activity is likely to have been more precipitous than shown in the above chart as activity in the retail, transport and hospitality sectors was subdued during the baseline period given the chilling effects of the dramatic events at beginning of the year. More so, these events came on the back of a slowdown induced by the continued countrywide demonstrations since October 2019.
The lockdown, for all its ills, brought some unexpected benefits to the beleaguered private sector. Part of the imposed measures were the closure of border posts with neighbouring countries. This provided breathing space for the private sector and an opportunity to grow – an opportunity that is likely to be enhanced as part of the new government program to diversify resources by stricter implementation of tariffs on imported goods.
During May, the Iraq Stock Exchange (ISX) continued operating in-line with the government’s guidance of reduced commercial activity, with three trading days per week down from the prior five – which was further reduced as the market closed on 21st May ahead of the extended Eid holiday. As argued last month, the misguided attempt to calm the market’s fears by lowering the daily stock price limit down to 5% from 10%, after leading to a sell-off in the three trading days in April, reversed sharply in May’s nine trading days as the market rose 10.7%.
The not as bad as feared hypothesis notwithstanding, the outlook for Iraq is still fraught with uncertainties. For starters, oil prices have recovered significantly and have begun to discount a supply-demand imbalance in favour of supply sooner than expected. Yet the evolution of the COVID-19 pandemic is uncertain as the world slowly emerges from a global lockdown and the consequences of global economic disruptions in the wake of COVID-19 are still unfolding with significant implications for oil demand. Higher oil prices will also likely bring back some of the shuttered supply – especially relevant in the case of US shale oil given its sensitivity to price. The most likely scenario is still a 12-month average price of $30-40 per barrel (/bbl) for Brent crude and $45-55/bbl average for the subsequent 12-months.
Additionally, the new government has a herculean task of passing its proposed reforms through the status quo focused political elite which dominates parliament, while at the same time needing acceptance of its austerity program by an alienated population. Finally, the ease of the lockdown measures brought a sharp increase in COVID-19 cases, raising fears of a second wave of the pandemic and a re-imposition of lockdown measures as evidenced by the introduction on 31st May of a one-week curfew to contain the latest increase in cases, which was subsequently extended for another week.
These concerns notwithstanding, as Iraq’s equity market was discounting neither an economic nor a corporate earnings recovery, it is worth concluding this update with the same one made here last month, i.e. citing the closing argument of the Asia Frontier Capital team in the March newsletter:-
“The recent stock market correction, though painful, is now providing an excellent entry point to investors as valuations across our universe are at 10-year lows – stock picking has never been easier. Though we believe global markets could remain volatile in the near term as the number of infections rise and poor economic numbers come through, a sustained rally could be seen once there is an indication of infections peaking especially in Europe and the U.S.
“Asian frontier markets have bounced back very strongly after previous episodes of market dislocation such as in 2008-09 with markets like Pakistan and Vietnam generating much higher returns than major indices. Though it is very easy to get distracted with the negative consequences of the pandemic, Asian frontier markets are at present and will over the next few months provide an opportunity to invest in these markets last seen a decade ago.”
Mr Tabaqchali (@AMTabaqchali) is the CIO of the AFC Iraq Fund, and is an experienced capital markets professional with over 25 years’ experience in US and MENA markets. He is a non-resident Fellow at the Institute of Regional and International Studies (IRIS) at the American University of Iraq-Sulaimani (AUIS), and an Adjunct Assistant Professor at AUIS. He is a board member of the Credit Bank of Iraq.
His comments, opinions and analyses are personal views and are intended to be for informational purposes and general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any fund or security or to adopt any investment strategy. It does not constitute legal or tax or investment advice. The information provided in this material is compiled from sources that are believed to be reliable, but no guarantee is made of its correctness, is rendered as at publication date and may change without notice and it is not intended as a complete analysis of every material fact regarding Iraq, the region, market or investment.
In the latest instalment in our series on sustainable job creation in Iraq, we spoke to Ahmed Tabaqchali, visiting fellow at the American University of Sulaimani’s Institute of Regional and International Studies (IRIS). Mr. Tabaqchali is also CIO of Asia Frontier Capital’s Iraq fund and Board Member of the Credit Bank of Iraq. Additionally, he has decades of experience in finance, having also worked with the National Bank of Kuwait’s investment arm.
In our last interview, we spoke with World Economic Forum contributor and distinguished economic historian Ewout Frankema, who discussed the role of the state in job creation.
This month we take a different tack and hear Mr.Tabachali’s views on the role of finance and markets, Iraq’s early efforts mobilizing financial technology (FINTECH) for the unbanked and kickstarting small and medium-sized enterprise (SME) growth.
AT: In terms of strategy, everything the new government will have to do has to go through parliament, including accessing foreign loans and reforming the public sector. When it comes to Iraq it is not a question of how strong the institutions are or how competent individuals are, it is a question of passing this through parliament with all of its political fragmentation, between the different pollical parties and within each party between its leadership and members, all of which makes reaching a consensus to embark on real, and thus difficult, reforms very hard. However, the scale of the crisis, brought by COVID-19 both socially and economically, might act as a catalyst for real change.
What is the current risk with having so much of the hiring in the public sector and what might be done to minimise this problem?
AT: Some things have to be done now that are comparatively easy and have been done in the past. Ad hoc measures such as freezing new hiring, cutting staff through attrition, putting a cap on benefits and letting this cascade through every department. This worked last time to a limited extent. But these changes are small scale, easily reversible and they do not solve the wider problem.
One problem is that you cannot have every ministry manage its own human resource processes, there is a need to have a central human resource structure. One course of action could be to separate benefits from salaries and link them to performance. This may sound horrendously complicated but on the public sector side, there is a little alternative. I don’t subscribe to the idea that this is a crisis that will pass, it is a multi-year crisis, a lot of oil demand will come back, but I cannot see a recovery anywhere near the pre-COVID situation.
Iraq is now not only battling a difficult internal situation but a weakened global economy. We are not just talking about a major disaster in one sector only. Consider such effects on hospitality and tourism; that will affect entire countries dependent on tourism, and then consider the knock-on effect on other sectors: what does that do to worldwide aggregate demand? What does that mean to Iraq? It means that oil prices will recover but they won’t be anything sustainably higher than $50 or $55. This points to the need for a complete change in mentality within the Iraqi governing elite and indeed, society at large.
Within Iraq, the government has very limited space to manoeuvre. If you look at Central Bank data on bank lending to the government and on T-Bill issuance, we survived in 2014-2017 through using reserves, via indirect monetary financing, and government bank lending. But while some of that has been paid off, CBI data as the end of November 2019 show that total domestic debt has increased to the prior crisis’ peak. So, I cannot see that being repeated, not in the same way as then. This time, I struggle to see the state banks’ lending beyond a few billion. The reserves are there but not un-limited and then there are conditionality constraints on any upcoming IMF loans. So, there will be no waiting out this crisis, there has to be decisive reform.
What danger is there to the SME sector, in terms of constrained available credit from banks, given this lending is important for start-ups?
AT: For the private sector banks, if you look at the end of 2018’s data, there is something like a $9 bn deposit base, 70% of which is in current accounts, so they can’t lend more than one-third of this, maximum. So, you can’t look to the private sector for state loans. That leaves the state banks, and they are so undercapitalized, burdened by un-resolved legacies of the prior regime, they function by a miracle or by pushing the accounting rules’ envelope. For example, you have an asset that is no longer a creditworthy asset, but you leave it on the books without making realistic downward adjustments to its value and without taking sufficient provisions. So that room for manoeuvre is very limited. Iraq has the foreign deposits at the Ministry of Finance, there is about $6bn there so there are some available funds here and there to meet immediate needs, but how far will you go with that? The need for the state to access domestic debt will eventually place restrictions on available funds for the SME sector.
Iraq is sliding towards a danger zone, a crunch point with foreign reserves where there is a risk of currency devaluation.
AT: Yes. And one problem here is that the last government, to appease the October demonstrations, hired additional employees and lowered the retirement age, adding at least another $6bn to the salary and pensions outlay which is now baked into the current budget. So, the $44bn in salaries and pensions in 2019, is more like $50bn for 2020. Similarly, the $73 bn spent on current expenditures, which also includes transfers to SOE’s, social security and subsidies for fuel and energy, is now more like $80 bn in current expenditures. How much can you cut from that without real restructuring?
So Iraq is facing an emergency situation to mobilise the private sector and there is a risk state banks may have limited room for lending to SMEs. One thing Iraq can do perhaps is maximise export finance and partnerships with foreign banks for SME lending, such as the recent scheme with Commerzbank. And of course, the Iraqi government has its own fund for this, the One Trillion Dinars initiative.
AT: There is no doubt that these initiatives are vital for new business ventures. The issue is structural impediments that are limiting these schemes. Access to finance is very crucial for start-ups to work, but in order for these organizations to operate you need to remove the stifling regulatory environment. The arbitrary nature of taxes, the expenses involved in just setting up and the many bureaucratic steps required to get started. So at the moment many of these start-ups are informal. The only way for these schemes to work is for them to start in the informal sector.
But they can’t make the transition to formality because the process to attain that status is so complicated and expensive, to start and to maintain. We always talk of mobilizing the private sector, but we are throttling it on a daily basis. Look at the UAE for example, they have the Free Zones, a very low time required for company registration, but with Iraq it is a stifling number of procedures.
The solution as far as the Iraqi government are concerned sadly seems to be another level of bureaucracy. In order to mobilise more start-ups, the government following the October demonstrations allowed for 18-35-year-olds to have fast-track separate set of regulations for start-ups in certain industries. So, the same bureaucracy will handle two parallel categories. You open up the door for even more corruption with more bureaucracy.
Every country, of course, has bureaucracy. But we have absurd requirements on top of the usual. Even just very small things, like paying a bill, can be a nightmare. And this is the legacy of formal socialism.
You are saying that in Iraq, socialism is not simply a term to be used as a political label, it is a word that is formally used in laws that are still on the books from decades ago.
AT: That’s right. So what Iraq needs is a change in the political economy. Look at the informal sector -it is mostly in retail, such as hawking goods, and in hospitality such as restaurants, and not in productive sectors. It’s informal because it is so expensive to start up formally. Change the regulations so it is more like the UAE, give them a year’s amnesty before you implement a much easier, formal registration process. These businesses hide because the only way they can operate is by bribing various officials. An amnesty would free them from harassments and un-necessary expenses during the transition to sensible regulations. The government needs to do something that is drastic, and very different from the past, to mobilise the private sector.
You can’t have a top-heavy, authoritarian socialist bureaucracy creating jobs or opening up the private sector. During the Kuwait conference, Iraq’s National Investment Commission came up with the One-Stop-Shop initiative – more bureaucracy on top of the bureaucracy. Why not follow the Kurdish Region of Iraq’s approach? Just get a visa on arrival for certain nationalities. That is the direction we need to be going in.
There has been a growing relationship between telecoms and banks in Iraq to provide services such as mobile wallets. Some of it is Iraqi initiative, some of it is fostered by development agencies. Perhaps one danger now is that if public sector payments are digitized, the salaries are still in jeopardy. How important have these FINTECH developments been?
AT: This is where we will see a lot of growth and excitement. One barrier to further progress is not technological. We have decent internet so the issue is firstly, we need to increase the number of areas where these innovations can be used. Right now they are quite limited. I am thinking of using a mobile e-wallet but I have to go to an official shop in town and register, supply the required set of documentation, and once you use it, the places you can use it in are rather limited. A part of the potential in this technology is that it will make it difficult to cover up small scale corruption, which is easy with cash. But there is still a chicken and egg situation in terms of outlets where e-wallets can be used.
So we could say in the long run, the public demand for convenience may crowd out the demand for corruption?
AT: Yes, and in the long run, it can have a huge effect on the “unbanked” and that will have huge potential for job creation. I have some relatives in government who started receiving their salaries through their banks, and their usage followed the same patterns seen by those in the private sector who were provided with Bank cards as I learned from speaking to bankers. At the beginning where there was an ATM when salaries were dispersed the ATM would just empty as people used it as a cash-out outlet. But in time they started leaving money in the bank and starting using the cards for making purchases. So, the cards have been extremely useful in the transition away from cash.
Similarly, for the government’s initiative when the card/ e-wallets were linked to a Mastercard, people started keeping some funds on the card. In the process they were creating deposits, giving the bank the ability to lend as these deposits grow and become sticky. So, there is convenience and value there, and that could spark wider financial development. But there needs to be a bigger deposit insurance scheme in banks, more than the very small $25,000-dollar limit recently introduced. But in the long term, this is extremely exciting. And these are the reforms that need to be pushed, and they should be COVID-inspired reforms because this is how Iraq gets out of its nightmare.
Would you say then, this is not about what the government needs to do but in some ways, about what the government should not do?
AT: I agree although of course there is a vital role for the government in general. The government should ensure there are law and order. Without that, a business cannot run, they need reliable mechanisms of exchange, debt and credit, and the enforcement of contracts. That is only done through law and order. It doesn’t have to copy a Western model either, but what is needed is the monopoly of violence by the state, and its monopoly to enforce the law, i.e. when rules of the game are predictable, enforceable, and applicable to all. Other competencies of the government are in infrastructure. Roads and electricity are enablers, as well as education and healthcare. Healthcare is a great equalizer, at least with decent healthcare you are helping the most vulnerable, and in the process building the state’s legitimacy. And if the government focuses on these and opens up the private sector, it will flourish.
KAPITA has compiled a study about the economic effects resulting from the COVID-19 Pandemic.
The research aims to provide insights and recommendations to tackle the challenges and opportunities that currently face the various segments of the Iraqi market. This will aid governmental organizations and authorities in devising effective policies to make a faster economic recovery.
Our team studied the magnitude of the current economic crisis resulting from plummeting oil prices and the preventive measures taken against the virus. The research surveyed over 500 people from various professional backgrounds such as public and private sector employees and business owners. Also the research includes insights from experts from a range of fields such as finance, economy, construction and business development.
The study discusses attitudes towards the financial situation and the extent of the impact on different sectors such as, Energy sector, Travel sector, E-commerce, Banking system etc.
Here are some key highlights from the study ‘Surviving the COVID-19 Crisis: Preliminary Findings of the Economic Impact on Iraq“:
KAPITA’s research team deeply thanks and appreciates its partners who majorly contributed to the completion of this study. We sincerely thank Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) for being an outstanding enabler for us, Iraqi Innovation Alliance (IIA) for their contribution in data collection and Iraq Business News (IBN) for being our media partner.
We would like to thank all the people who filled out the survey and contributed to the shaping of this study to highlight the impact of the COVID-19 crisis on Iraq’s economy.
KAPITA’s research team would like to express its deep gratitude to the interviewees for their help in making this research possible (The following order is the order of the interviews):
By John Lee.
His Excellency Prime Minister Mustafa Al-Kadhimi received Chinese Ambassador to Baghdad Zhang Tao congratulated His Excellency the Premier Al-Kadhimi for swearing-in as Prime Minister, and extended the Chinese Premier greetings, reaffirmed china aspiration to strengthen the relationship with Iraq.
Ambassador Zhang Tao underscored China support to Iraq in the international affairs, in strengthening its sovereignty and territory unity, also in counter-terrorism, and invited His Excellency the Premier Al-Kadhimi to Visit Beijing.
From his side; the Premier AL-Kadhimi thanked the Chinese Ambassador on the congratulation, confirmed that Iraq appreciated China support in combating coronavirus pandemic, and expressed his aspiration for strengthening the economic bilateral relationship to address the current crisis which resulted from the Oil prices decline, also strengthening Chinese investment companies in Iraq in the field of energy, and in the agriculture to develop fertile lands that non-cultivated
Media Office of the Prime Minister.
(Source: Office of the Iraqi Prime Minister)